Macroeconomic impact of tariffs and policy uncertainty

Key takeaways

• Tariffs affect economies most directly through trade volume and prices. Tariffs lower output growth everywhere, though the magnitude varies by country and scenario. They also tend to raise inflation, most notably in the imposing countries.
• Tariffs have indirect effects, including exchange rate shifts, supply chain disruptions, trade diversion and heightened uncertainty. These could worsen growth and inflation effects as well as the policy trade-offs central banks face.
• If it proves persistent, trade policy uncertainty could depress domestic demand and put global growth at risk.